HSBC: Chinese credit is set to boom again

HSBC's Monetary Conditions Indicator, which measures how much and how cheaply new credit is created, shows that, while conditions were unchanged in February, the real interest rate is falling.

The index, compiled by HSBC analysts led by Julia Wang, jumped from a reading of 3.4 in December 2015 to 6.4 for January 2016.

It stayed at the same level in February, according to the analysts.

Monetary conditions have eased this year because inflation is picking up while interest rates are staying the same, which makes future debt repayments more affordable.

Meanwhile, it also looks like the central bank will cut rates further, making credit even cheaper.

Here's HSBC (emphasis ours):

Despite the marginal decline in February, the overall trend for the real interest rate has been undoubtedly one of continuous improvement in recent months.

The contribution from the real interest rate has first turned positive since June 2015 and has steadily increased to a peak of 2.3 in January 2016. We still see further room for a policy rate cut and forecast another 50bp reduction to the lending rate in 2016.

And here's the chart:

HSBC

The chart shows monetary conditions as loose as at any time in the past two years. China has a huge corporate debt pile, but the day of reckoning for paying this off is looking further away.